Summary
In this case the judge granted leave to appeal on a point of law under s.69 of
the Arbitration Act and then heard the appeal. He held that the arbitrator had
erred in holding that the word "guarantee" in relation to the duration
of a time charterparty amounted to a guarantee of a minimum lump sum
remuneration, whether any actual damage was suffered by early redelivery or not.
On the contrary, this was a case where the ordinary rule for the calculation of
damages for early redelivery applied – namely, the difference between the
charter rate and the market rate for the vessel for the period of the early
redelivery or, if there was no market rate, the normal and direct loss suffered
by the owners. The award was remitted to the arbitrator for him to determine
damages on these principles

DMC Category Rating: Confirmed

FactsThe appellant charterers, Miranos, appealed under the Arbitration Act 1996
s.69 against an arbitration award in which the arbitrator held that the owners,
VOC Steel, were entitled to hire for the guaranteed duration of a time charter
after the vessel's early re-delivery. The charter was on an amended New York
Produce Exchange form for the period of a voyage from the US Gulf to the Eastern
Mediterranean, the charterers guaranteeing a minimum 35 days' duration. In the
event, the vessel's employment lasted only 33 days, 12 hours and 31 minutes,
some 35.5 hours short of the guaranteed period. Immediately after redelivery,
the vessel sailed on the ballast leg of her next employment, some one and a half
days earlier than would otherwise have been the case. That employment had been
fixed before it had been known that she would be re-delivered early.

The owners claimed payment of hire at the charter rate for the
full 35 days of the guaranteed period. The charterers agreed to pay only the
difference between the charter rate and the vessel's actual earnings for the
period of the shortfall. The claim went to arbitration.

In his award, the arbitrator considered that the word
"guarantee" in relation to duration involved a different obligation
from the obligation to re-deliver on a specified day. He held that the guarantee
amounted to a guarantee of a minimum lump sum remuneration in respect of the
time charter trip, regardless whether or not any actual damage was suffered by
reason on the early re-delivery. The voyage which followed was not, he said,
taken in mitigation of the early re-delivery because it was going to be
performed in any event. Consequently, he awarded in owners’ favour.

In the appeal, owners, as respondents, accepted that they had to
give credit for any additional benefits they had enjoyed by reason of the
breach, and those benefits might include additional hire they had earned by
reason of the breach. Where, however, the innocent party would have earned the
sum in question with or without the breach, it could not be said that it had
earned that sum by reason of the breach. Thus, if earnings on the subsequent
charter were (as here) exactly the same, with or without the breach, no part of
those earning could be taken into account in mitigation of damages. The only
benefit to owners was that they had received the freight for the subsequent
fixture one and a half days earlier than they would have done had the vessel
been redelivered on time.

Judgment
The judge held that the arbitrator erred in holding that the guarantee
amounted to a guarantee of a minimum lump sum remuneration, whether any actual
damage was suffered or not. The guarantee of minimum duration could not amount
to a guarantee of remuneration. The only guarantee was of duration. If one and a
half days had been taken up in off-hire and the voyage had lasted 35 days, there
would have been no breach of the guarantee even though 35 days' hire was not
paid. The breach of the guarantee was the same as a breach of warranty that the
charter voyage would be of a certain length and the relief to be granted in
respect of such a breach was damages.

The effect of the early re-delivery was to make the vessel
available to owners for a period of one and a half days. Not only did the owners
earn their money on the next voyage one and a half days earlier than they
otherwise would have done, they also had one and a half days more to use the
vessel than they otherwise would have done. In such circumstances, the
"prima facie measure of damages for early re-delivery is applicable here.
The use of the word "guarantee" in the charter was to distinguish it
from others where estimates of duration are given…It does not impact in any
way on the measure of damages if the obligation is broken". The owners had
to give credit for any benefits arising to them. The usual measure of damages
for early re-delivery was applicable.

The arbitrator had also misdirected himself on the issue of
mitigation, when he had considered that what mattered was whether or not the
succeeding voyage had been concluded as a result of the early re-delivery.

The simple equation for measuring damages to which owners were
entitled was the comparison between the charter rate and the available market
rate for the one and a half days or, if there was no market rate the normal and
direct loss the owners suffered. The award was remitted to the arbitrator for
him to make a finding as to the owners’ loss on that basis.

These Case Notes have been prepared
with care, but neither the Editor nor the International and other Contributors can guarantee that they are free from error, nor
that they contain every pertinent point. Reliance should not therefore be placed
upon them without independent verification. The Editor and the International and
other
Contributors disclaim all liability
for any loss of whatsoever nature and howsoever arising as a result of others
acting or refraining from acting in reliance on the contents of this website and
the information to which it gives access. The
Editor claims copyright in the content of the website.